WTO Upholds Canadian Dairy Ruling

Published 8:00 pm, Thursday, December 19, 2002

An appeals panel of the World Trade Organization on Friday upheld a ruling that Canada is unfairly subsidizing dairy products sold to the United States and New Zealand.

The panel rejected Canada's appeal against a ruling that its Commercial Export Milk program that supplies milk to producers of dairy products amounts to a banned export subsidy.

The dispute involves mainly cheeses from Quebec and Ontario that are worth more than $258 million annually.

The United States and New Zealand could now ask the WTO for permission to impose trade sanctions on Canada.

"Canada has been unfairly subsidizing its dairy industry for years and American dairy farmers have been suffering because of it," said U.S. Trade Representative Robert Zoellick. "This is an important victory for American dairy farmers and processors and U.S. agriculture in general."

"Canada now needs to comply with its WTO obligations and end its unfair subsidies," he added.

New Zealand Trade Minister Jim Sutton said the ruling was "an excellent result."

"Canada's illegal export subsidies cost New Zealand about $35 million per year," he said.

In Geneva, Canada's WTO ambassador Sergio Marchi said he was disappointed by the decision.

Friday's ruling found sales by milk producers to milk processors under the program are at below cost and said this was "financed by virtue of governmental action" because the Canadian government set the domestic price of milk at above-market prices.

"As a result of this governmental action in the domestic market, a significant proportion of Canadian milk producers can cover all of their fixed costs of production through making these highly remunerative domestic milk sales," the report said.

The WTO originally ruled against Canada in 1999, forcing it to change the program. The United States and New Zealand insisted that the new program still broke WTO rules and brought another case to the WTO. They won the case, but the results of a Canadian appeal were inconclusive, leading the complaining countries to ask for a second ruling.